Arsenal is Out Fundraising for Fund III; Looks for $300M First Close

Arsenal Capital Partners expects to hit a first close of $300 million this month for its third fund, a source says.

The New York-based private equity firm is officially out marketing for the pool, Arsenal Capital Partners III LP, the source says. The funds’s target is $750 million, the person says. Arsenal is not using a placement agent.

Arsenal raised $500 million for its previous fund in 2006. The fund has a net IRR of 11%, according to June 30 data from the Regents of the University of California Alternative Investments.

Arsenal was founded in 2000 by a duo of former executives from Thomas H. Lee Partners. The PE firm focuses on the lower middle market. It targets sectors including specialty industrials, healthcare IT and financial services. The firm invests in companies with an enterprise value of $50 million to $250 million.

In March, Arsenal acquired Western Institutional Review Board, which operates federally mandated IRB panels. Arsenal, in March, also agreed to buy the colorants business from Evonik Industries. The PE firm also bought the bought Fluoro-Seal, a plastics coating company, in January.

The fundraising market is very crowded with “hundreds and hundreds” of firms out trying to raise money, the source says. Larger buyout shops have also fallen out of favor with LPs, which are seeking more focused, smaller funds, peHUB has previously reported.

“Industry specialization has been critical for us,” the source says. “Small is beautiful.”